While a surprisingly large percent of businesses fail due to cash flow problems, there are smart business practices to prevent a financial collapse. Discover long-term success with these best practices to help manage your small business cash flow.
2. According to a U.S. Bank study, a whopping 82% of businesses that fail do so
because of cash flow problems.
However, is there a way to avoid catastrophe altogether? While the occasional
“surprise” incident or economic challenge may be unavoidable, there are ways in
which small businesses can manage their cash flow with smart and preventative
practices. We’ve listed and described five tactics that can help small business stay
ahead of cash flow problems, get paid from clients faster, save money for rainy days,
and maintain efficiency. Our goal is for you to be able to acquire the immediate cash
flow you need for long-term success with the following best practices.
3. Just think to yourself: The sooner you send the invoice, the sooner you’ll get paid!
Prepare and send off your invoices immediately following the completion of the job
or sale. Waiting to send invoices not only creates the perception that you don’t need
the money immediately, it also slows the process of future payments. Another way
to stand firm on payment terms and expedite the process is through incentives, like
payment discounts. Many business owners find that charging interest or a penalty for
late fees creates a sense of urgency from the client, driving them to pay faster. The most
important thing is to make all of your payment details clear — from the due date, to the
payment methods, to the repercussions for late payments.
Invoice quickly and ensure the payment terms are clear.
4. As with all first impressions, you only have one chance to show your customers how
you expect to get paid for your services or products. Make sure you set a good first
impression! Many small business owners find that reaching out to their customers and
walking them through the first invoice is beneficial to not only receiving payments but
also to enhancing the business relationship. Following this, they maintain contact by
following up a few days before the invoice is due to set a reminder and ensure that the
invoice was approved. Once the invoice is paid, they call their customers and thank them
for following the payment terms. With this expectation in place, the customer learns how
to pay you on time and by your terms.
Create the payment expectation with the first invoice.
5. Online invoicing, sometimes called e-invoicing, makes the process of invoicing much
simpler. With the myriad online invoicing options available, small business owners can
easily create and send invoices, track time, manage their expenses and get paid online.
Many software applications, such as FreshBooks, also have the capabilities that allow you
to track invoice communication, so that you know when your invoices are sent, viewed,
and paid. If you know that an invoice is viewed, you know that your client has seen it, and
that it has not gone “missing” or been “forgotten.”
Use online invoicing.
6. There are so many online resources for both operational management and financial
management. With the onset of software and applications, small business owners can
now manage their cash flow and finances with easy-to-use, inexpensive, and secure
digital tools. Tasks like accounting, bookkeeping, invoicing, and payroll no longer need to
be tedious and time-consuming. Even platforms like Dropbox and Google Drive can be
a location where you store and keep track of cash flow spreadsheets. With these tools,
your finances are kept secure, up to date and automated.
Take advantage of technology.
7. When running a business, of course it’s a strength to stay positive and hopeful with
new business leads and potential opportunities. However, when it comes to managing
your cash flow, you have to stay realistic. Pay on the revenue that you have, not on
what you hope to make. Make payments, purchases and payroll based on what you
actually have in the bank. This will keep you mindful about what you are able to spend
and how you should be budgeting for maintenance and future growth. Studies over the
years have shown that cash flow problems are usually the leading cause of failures for
businesses. According to a study from Equifax, “bankruptcies among the nation’s 27
million small businesses leaped by 81 percent between June 2008 and June 2009. While
the U.S. Small Business Administration (SBA) estimates that about 600,000 new small
businesses are launched each year, a 2007 study reported in the U.S. Bureau of Labor
Statistics’ Monthly Labor Review indicates that two-thirds will only survive two years, 44
percent survive four years, and 31 percent survive for at least seven years.”
8. It does help to effectively manage your cash flow in order to prevent business failure.
However, cash flow problems may arise whether you have good management practices
or not. Fortunately, small business funding is always available as a safety net. With
funding from a third-party lender and these five best practices, your business will have a
stronger chance for long-term success!